Free Agent Auctions and Revenue Sharing: A Simple Approach

This paper uses a simple approach to address the issue of how revenue sharing in professional sports leagues can affect the allocation of free agent players to teams. To affect the allocation of free agents, the imposition of revenue sharing must alter the ranking of bidding teams in terms of maximum salary offers. Two types of revenue sharing systems are considered: traditional gate revenue sharing and pooled revenue sharing. The paper suggests that team rankings for ability to pay are not affected by pooled revenue sharing, however the distribution of player salaries will be compressed. Traditional gate revenue sharing can alter the ability to pay rankings for teams, depending upon playing schedules and the closeness of revenues between closely ranked teams.